Venture capitalism recovering after pandemic says British Business Bank

The British Business Bank’s market research finds higher company valuations with strong exit activity in 2020 and 2021 contributed to an uplift in venture capital financial returns.

According to the Bank’s latest report, UK Venture Capital Financial Returns 2021, UK VC funds with a 2008 to 2013 vintage have seen an increase in their pooled Distributions to Paid In Capital (DPI) multiples of 0.26 points, from 0.79 in 2020 to 1.05 in 2021.

Over the same time period, their pooled Total Value to Paid In Capital (TVPI) multiple has increased by 0.28 points, from 1.81 to 2.09 in 2021. UK venture capital has also performed strongly over the longer term, with pooled TVPI multiples above 2 for most two-year periods since 2002.

The overall improvement in UK fund performance was confirmed by the Bank’s fund manager survey which shows fund managers have positive views on VC market conditions.

Nearly all surveyed fund managers reported positive views on the quality of investments available (97 per cent) and current exit conditions (93 per cent), with the majority (59 per cent and 72 per cent respectively) reporting an improvement on these measures over the last year.

However, a high proportion of fund managers (59 per cent) reported high levels of competition for deals, which may suggest these high valuations might not be sustained until exit.

Matt Adey, director of economics at the British Business Bank, said: “This report provides as comprehensive a view as possible of the performance of the UK venture capital market.

“The report shows that UK VC continues to have good performance relative to the US and has the potential to be an attractive asset class for LPs. It’s encouraging that fund managers are overwhelmingly positive about market conditions with a sharp increase in performance in the last year.”